All sides know that massive cuts are coming, which is probably a good thing. There are numerous examples of countries where large cuts caused a short fall in GDP and then put growth back on track more rapidly (Canada, New Zealand are good examples) and also good examples where consistent significant deficit spending has caused long periods of sub-par growth (Japan) or worse (Greece).

There are very very few examples were sustained deficit spending has ever led to sustainable growth. The payback is unavoidable.

When it comes down to it, the left simply don’t want to cut spending. Does it really matter if spending is reduction starts now or in 9 months time? In terms of growth, probably not really.

I’ll ask those in the “cut later/Labour” camp this (rhetorical) question. What happens if spending is maintained at current levels (no cuts till 2011) yet we see little or no growth?

By Labour’s logic, we should not cut, and maintain the huge budget deficit. Problem is, the market won’t let you do that. You will see Gilt yields rise, debt servicing costs rise wiping out a lot of the benefits of growth, and if it gets too large a run on the currency. In the worst case you get a situation like Greece and investor confidence totally fails. Even now corporates are pulling out of the UK because of the uncertainty caused by the deficit.

So, faced with all that, is continuing to spend money to prop up a client state and Labour’s chances at election really in the best interests of the country?

I think we all, deep down, know the answer to that one.